1) A secure element in a mobile phone to store cardholder data
2) NFC (Near Field Communication) to initiate a transaction (through the point-of-sale terminal of the merchant)
3) Bluetooth or WiFi to complete the processing of the transaction and send any information to the customer's smartphone (coupons…).
For more data on this specific patent filing, we think that Patently Apple did a great job on this and explains very well the possible new features and takes a less US-centric view (US struggling to understand NFC and EMV...,unlike the rest of the world) of possibilities offered with NFC.
We think that this is going to change the market landscape for all NFC vendors, as NFC adoption is likely to get a boost from this Apple arrival.
An API to allow web apps to use NFC-enabled hardware in mobile devices?
The W3C (web standards body) is currently working on a document defining an API (application programming interface) for access to the hardware subsystem for near field communication (NFC). It allows Web pages to read and write NFC tags, to send and receive messages between NFC devices, and to hand over to WiFi or Bluetooth.
This API would enable a range of capabilities for websites and apps such as tapping two devices together to share data such as coupons, contacts, payments, two-person games and many other features.
We think this news is very important and becomes even more relevant in view of the Apple patent application filed last week.
Many US Retailers faced card accounts data breaches during Christmas holidays
Target (TGT) had as many as 40 million customers' personal details (names, addresses, and phone numbers) hacked during the Christmas season. The US National Retail Federation said that the problem lies with the outdated credit and debit card technology still in use in the country (swiping) vs. other technologies which in Europe and other parts of the world are prevalent such as EMV (chip-based).
A huge market for NFC players
In our view, 2014 might be the year of NFC. And the perfect solution for device makers could be a combination of Bluetooth Smart and NFC, as illustrated by the Apple patent filing.
We think that the NFC secure element will be embedded in the next iPhone (iPhone 6), suggesting that NXP Semiconductors or Inside Secure will be the providers. This could act as a big catalyst for increased adoption of mobile payments.
NXP Semiconductors and Inside Secure own almost 100% of NFC patents. We think that Apple won't take the risk to breach any of the NFC patents and thereby the positive for those two companies.
How to play the mobile payments theme?
NXP Semiconductors and Paris-based Inside Secure are the patent winners of the NFC technology to be embedded in the iPhone 6 in our view and will benefit from increased demand for NFC solutions.
We think that Paris-listed Gemalto and French privately-held Oberthur Technologies (potential IPO this year), respectively number one and two in the EMV chip-based cards, will benefit from an expanding US market.
Even if Oberthur is more exposed to the US EMV market, we think that Gemalto might greatly benefit from the upcoming switch from swipe to EMV-based cards.
French Ingenico and US-based VeriFone are the likely winners in POS (point-of-sale) solutions as terminals will probably need to be upgraded (something US banks and retailers are somewhat reluctant to do).
As often Apple is not a "tech" company, but a company that is able to bring complex tech features to the mass-market. By doing so with mobile payments it will create a new market like it did with music in the early 2000's.